Sat, Jul 03, 2004 - Page 11 News List

Intel bets big on memory chips

`WORKING LIKE CRAZY' Last year's 18 percent sales slump led to a new strategy to regain market share, and a decision to focus on flash memory seems to be paying off

BLOOMBERG

When Intel Corp division managers ask CEO Craig Barrett for more resources, he calls them into room 514, a windowless conference room down the hall from his cubicle at the company's headquarters in Santa Clara, California.

"It's like being summoned to the principal's office," said Tom Lacey, who has been through three such meetings in the six months since he was named to run the company's memory-chip business. The unit had an 18 percent slump in sales in 2003.

Lacey, 46, said in an interview that he passed these "inquisitions," as Intel employees refer to them, by winning Barrett's approval to increase his engineering headcount by 70 percent and spend more on research for new chip designs. "The pressure is on us now," he said.

Barrett's focus on Intel's memory-chip business, whose chips store data and programs in products such as mobile phones, has begun to pay off. According to data released yesterday by iSuppli Corp, a technology research firm in El Segundo, California, Intel stemmed a decline in its share of the $11 billion market for memory chips during the first quarter.

"Intel is making the right start in diversifying to find other ways to drive growth," said Sangeeth Peruri, an analyst at J & W Seligman in Palo Alto, California, a firm that owns Intel shares and manages $20 billion. "PCs have been growing nicely but are a lot closer to maturity than they were five years ago," he said. Intel, the world's largest maker of semiconductors, said on a June 4 conference call that flash memory is the main reason the company may reach its highest sales forecast this quarter. The market for flash is growing more than twice as fast as Intel's computer-processor business.

Barrett, 64, told investors at a May meeting that communications and memory chips will jumpstart orders as sales growth is forecast to slow to 9 percent this year.

Intel had 10.3 percent of the flash-memory chip market in the first quarter, little changed from the fourth quarter's 10.6 percent, as industry sales rose 2.5 percent to $4 billion, iSuppli analyst Betsy Van Hees said. Intel began 2003 with a 19 percent share and ended the year with 10.6 percent.

The company's share of the market slumped last year to fourth from first after customers balked at a decision by Lacey's predecessor to raise prices.

Barrett has charged Lacey with reclaiming its top ranking.

``We need to be No.1 overall. If not, we are marginalized,'' Lacey said. ``That's not a good thing if you are the world's largest semiconductor company.''

Sales of flash memory will grow about 49 percent this year, nearly three times the rate of other microprocessor sales, according to forecasts made this month by the Semiconductor Industry Association.

To become the market leader, Intel must surpass South Korea's Samsung Electronics, Japan's Toshiba Corp and Advanced Micro Devices. Samsung and Toshiba gained share last year in part because they made chips using a technology better-suited for the memory cards that store pictures in digital cameras.

Flash memory provided about 5 percent of Intel's $8 billion in sales in the first quarter, according to Van Hees' analysis. Intel doesn't give a breakdown of its memory revenue.

The company's sales growth, which has averaged 21 percent over the last three quarters, is forecast to slow to 9 percent by the fourth quarter, according to the average of 30 analysts' estimates in a survey by Thomson Financial.

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